SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X]X - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999MARCH 31, 2000 OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ________ TO _________
Commission File Number: 00027527
PLUG POWER INC.
(Exact name of registrant as specified in its charter)
968 ALBANY-SHAKER ROAD, LATHAM, NEW YORK 12110
(Address of registrant's principal executive office)
(518) 782-7700
(Registrant's telephone number, including area code)
DelawareDELAWARE 22-3672377
(State or other jurisdiction (I.R.S. Employer
of Incorporation) Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ] No [X](1)
The number of shares of common stock outstanding as of NovemberApril 30, 19992000 was
43,002,880,43,153,456 with a par value of $.01 per share
(1) The registrant has been subject to such filing requirements since
October 28, 1999, less than 90 days.share.
PLUG POWER INC.
INDEX to FORM 10-Q
PART I. FINANCIALINANCIAL INFORMATION Page
----
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1999March 31, 2000
and December 31, 19981999 3
Condensed Consolidated Statements of Operations - Three Months
and Nine Month
Periods ended September 30,March 31, 2000 and March 31, 1999 and
September 30, 1998
and Cumulative Amounts from Inception 4
Condensed Consolidated Statements of Cash Flows - Nine MonthsThree Month
Periods ended September 30,March 31, 2000 and March 31, 1999 and September 30, 1998
and Cumulative Amounts from Inception 5
Notes to Condensed Consolidated Financial Statements 6 - 87
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 98 - 1612
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities and Use of Proceeds 17 - 1813
Item 4 - Submission of Matters to a Vote of Security Holders 1813
Item 6 - Exhibits and Reports on Form 8-K 1813 - 2116
Signature 21
Page16
2
Part I - Financial Information
Item I - Financial Statements
PLUG POWER INC.
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
September 30,(Unaudited)
March 31, 2000 December 31, 1999
1998
------------ ------------
(Unaudited)-------------- -----------------
AssetsASSETS
Current assets:
Cash and cash equivalents, principally
commercial paper $ 3,173,497140,885,950 $ 3,993,122171,496,286
Restricted cash 285,000 --275,000 275,000
Accounts receivable 2,582,933 599,9555,303,831 5,212,943
Inventory 1,327,272 304,711
Other current assets 107,592 14,647
Due from investor -- 685,306
------------ ------------202,474 124,380
------------- -------------
Total current assets 6,149,022 5,293,030147,994,527 177,413,320
Restricted cash 5,875,274 --5,600,274 5,600,274
Property, plant and equipment, net 21,184,512 2,753,49226,122,079 23,333,791
Intangible assets 9,023,000 --
Investment in affiliate 10,337,750 --
Other assets -- 46,913
------------ ------------affiliates 11,598,000 9,778,250
------------- -------------
Total assets $ 43,546,558200,337,880 $ 8,093,435
============ ============
Liabilities and Stockholders Equity216,125,635
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,740,2614,340,357 $ 568,0074,644,496
Acrrued expenses 2,115,698 1,746,239
Due to investor 62,960 286,4923,070,561 3,004,126
Deferred grant revenue 200,000 200,000
Current portion of capital lease
obligation and long termlong-term debt 372,500 --
------------ ------------356,103 353,175
------------- -------------
Total current liabilities 6,291,419 2,600,7387,967,021 8,201,797
Long-term debt 5,600,274 5,600,274
Deferred grant revenue 750,000 800,000
Capital lease obligation 126,973 --
Long-term debt 5,875,274 --
------------ ------------88,947 117,030
------------- -------------
Total liabilities 12,293,666 2,600,738
------------ ------------14,406,242 14,719,101
------------- -------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $0.01 par value per share;
5,000,000 shares authorized; none issued
and outstanding -- --
Common stock, $0.01 par value per share;
95,000,000 shares authorized; 26,991,81443,098,556
shares issued and outstanding, September 30, 1999March 31,
2000 and 17,150,00043,015,508 shares issued and
outstanding, December 31, 1998 269,918 171,5001999 430,986 430,155
Paid-in capital 71,369,751 20,840,500251,735,127 249,964,994
Deficit accumulated during the
development stage (40,386,777) (15,519,303)
------------ ------------(66,234,475) (48,988,615)
------------- -------------
Total stockholders' equity 31,252,892 5,492,697
------------ ------------185,931,638 201,406,534
------------- -------------
Total liabilities &and stockholders'
equity $ 43,546,558200,337,880 $ 8,093,435
============ ============216,125,635
============= =============
The accompanying notes are an integral part of the financial statements.
Page
3
PLUG POWER INC.
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
Cumulative
Three months ended September 30, Nine months ended September 30, Cumulative
-------------------------------- -------------------------------March 31, Amounts from
2000 1999 1998 1999 1998 Inception
----------- ------------ ------------ ------------ ------------ -------------------------
Contract revenue $ 3,006,0612,932,793 $ 2,447,1851,737,757 $ 6,701,596 $ 4,995,838 $ 14,436,16621,667,707
Cost of contract revenue 4,731,854 3,386,762 9,849,688 6,825,063 19,939,976
------------ ------------3,898,747 2,183,404 29,486,872
------------ ------------ ------------
Loss on contracts (1,725,793) (939,577) (3,148,092) (1,829,225) (5,503,810)(965,954) (445,647) (7,819,165)
In-process research and development 4,984,000 -- -- -- -- 4,042,6409,026,640
Research and development expense 6,106,389 1,357,485 13,886,635 3,511,260 19,820,24111,444,172 2,980,774 37,883,934
General and administrative expense 1,688,344 538,982 7,288,080 1,867,238 10,671,758
------------ ------------1,556,430 2,929,100 14,868,390
Interest expense 95,470 -- 285,056
------------ ------------ ------------
Operating loss (9,520,526) (2,836,044) (24,322,807) (7,207,723) (40,038,449)
Other(19,046,026) (6,355,521) (69,883,185)
Interest income principally interest 149,550 73,929 367,583 115,401 563,922
------------ ------------2,308,166 43,750 5,628,460
------------ ------------ ------------
Loss before equity in losses of
affiliate (9,370,976) (2,762,115) (23,955,224) (7,092,322) (39,474,527)(16,737,860) (6,311,771) (64,254,725)
Equity in losses of affiliate (411,802) -- (912,250) -- (912,250)
------------ ------------(508,000) (187,500) (1,979,750)
------------ ------------ ------------
Net loss $(17,245,860) $ (9,782,778) $ (2,762,115) $(24,867,474) $ (7,092,322) $(40,386,777)
============ ============(6,499,271) $(66,234,475)
============ ============ ============
Loss per share:
Basic and diluted $ (0.38)(0.40) $ (0.17) $ (1.10) $ (0.56)
============ ============(0.32)
============ ============
Weighted average number of common
shares 25,423,078 15,964,130 22,688,822 12,583,150
============ ============outstanding 42,956,186 20,092,222
============ ============
The accompanying notes are an integral part of the financial statements.
Page
4
PLUG POWER INC.
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
NineCumulative
Three months ended September 30, Cumulative
---------------------------------March 31, Amounts from
2000 1999 1998 from Inception
------------
----------- ------------ -------------
Cash Flows From Operating Activities:
Net loss $(24,867,474) $(7,092,322) $(40,386,777)$ (17,245,860) $ (6,499,271) $ (66,234,475)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 988,668 323,443 1,675,518870,000 165,234 2,909,036
In-process research and development -- -- 4,042,640
Equity in losses of affiliate 912,250508,000 187,500 1,979,750
Amortization of intangible assets 601,500 -- 912,250601,500
Amortization of deferred rent 100,000 -- 50,000 150,000
Write-off of deferred rent 1,850,000-- -- 1,850,000
In-kind services -- 500,000-- 500,000
Stock based compensation 253,924 2,250,000 -- 2,250,0002,503,924
Compensatory options 112,100 159,000 324,100
Increases (decreases)31,700 48,700 1,222,500
Changes in operating assets:assets and liabilities:
Accounts receivable (1,982,978) (567,530) (2,582,933)(90,888) (299,472) (5,303,831)
Inventory (1,022,561) -- (1,327,272)
Due from investor -- 685,306 286,492
Other current assets (92,945) 9,969 (107,592)
Change in due from/due to investor 461,774 69,889 62,960(78,094) (123,144) (180,560)
Accounts payable and accrued expenses 3,541,713 661,700 5,807,851
Other assets and other liabilities 236,387(237,704) 421,109 7,362,810
Deferred grant revenue (50,000) -- 236,387
------------ ----------- ------------950,000
Due to investor -- (93,782) (286,492)
------------- ------------- -------------
Net cash used in operating activities (16,490,505) (5,935,851) (25,265,596)
------------ ----------- ------------(16,459,983) (3,207,820) (48,973,978)
------------- ------------- -------------
Cash Flows From Investing Activities:
Purchase of property, plant and equipment (8,536,633) (1,660,025) (11,268,420)
------------ ----------- ------------(3,658,288) (2,332,653) (17,178,337)
Purchase of intangible assets (9,624,500) -- (9,624,500)
Investment in affiliate (1,500,000) -- (1,500,000)
------------- ------------- -------------
Cash used in investing activities (8,536,633) (1,660,025) (11,268,420)
------------ ----------- ------------(14,782,788) (2,332,653) (28,302,837)
------------- ------------- -------------
Cash Flows From Financing Activities:
Contributed capital -- 13,000,000 130,742,782
Proceeds from initial public offering, net -- -- 94,611,455
Stock issuance costs -- -- (1,639,577)
Proceeds from stock option exercises 657,590 -- 699,497
Cash placed in escrow (6,160,274) -- (6,160,274)
Contributed-- (5,875,274)
Principal payments on capital 30,367,787 5,750,000 45,867,787
------------ ----------- ------------
Cashlease obligations (25,155) -- (91,118)
Principal payments on long-term debt -- -- (285,000)
------------- ------------- -------------
Net cash provided by financing activities 24,207,513 5,750,000 39,907,513
------------ ----------- ------------
Increase (decrease)632,435 13,000,000 218,162,765
------------- ------------- -------------
(Decrease) increase in cash (819,625) (1,845,876) 9,333,771and cash equivalents (30,610,336) 7,459,527 140,885,950
Cash and cash equivalents, beginning of period 171,496,286 3,993,122 3,080,181 --
------------ ----------- ------------------------- ------------- -------------
Cash and cash equivalents, end of period $ 3,173,497140,885,950 $ 1,234,30511,452,649 $ 3,173,497
============ =========== ============140,885,950
============= ============= =============
The accompanying notes are an integral part of the financial statements.
Page 5
PLUG POWER INC.
Notes to Condensed Consolidated Financial Statements
1. NATURE OF OPERATIONS
Plug Power Inc. Notes to Condensed Financial Statements
1. Nature of Operations
Plug Power Inc. (Company), was originally formed as a joint venture between
Edison Development Corporation (EDC) and Mechanical Technology Incorporated
(MTI) on June 27, 1997 and succeeded by merger to all of the assets,
liabilities and equity of Plug Power, L.L.C. in November 1999. The Company
is a development stage enterprise formed to research, develop, manufacture
and distribute fuel cells for electric power generation.
2. Basis of PresentationBASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30, 1999,March 31, 2000, the condensed
consolidated statements of operations for the three and nine months ended September
30, 1999 and 1998, and the condensed consolidated statements
of cash flows for the nine month periodsthree months ended September 30, 1999 and 1998March 31, 2000 have been prepared by
the Company without audit. In the opinion of management, all adjustments,
which consist solely of normal recurring adjustments, necessary to present
fairly, in accordance with generally accepted accounting principles, the
financial position, results of operations and changes in cash flows for all
periods presented, have been made. The results of operations for the interim
periods presented are not necessarily indicative of the results that may be
expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the condensedCompany's audited
financial statements and notes thereto included in the Company's Registration StatementAnnual
Report on Form S-1, File No. 333-86089. The results of
operations10-K filed for the periodfiscal year ended September 30, 1999 are not necessarily
indicative of the results for the full year.December 31, 1999.
3. Initial Public Offering
On November 3, 1999, the Company completed an initial public offering of
6,782,900 shares of common stock (the "Initial Public Offering") which
includes additional shares purchased pursuant to exercise of the
overallotment by the underwriter at the time of the Initial Public
Offering. We received proceeds of $93.4 million, which is net of $8.3
million of expenses and underwriting discounts relating to the issuance
and distribution of the securities. In connection with this offering, the
Company was converted to a C corporation from a limited liability
corporation. The financial statements are restated to present the Company
as a C corporation for all periods presented.
4. Loss Per ShareLOSS PER SHARE
Loss per share for the Company is as follows:
Three Three Nine Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Numerator:
Net loss $(9,782,778) $(2,762,115) $(24,867,474) $(7,092,322)
Denominator:
Weighted average number of
common shares 25,423,078 15,964,130 22,688,822 12,583,150
Page 6
Three months ended
-------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
Numerator:
Net loss $(17,245,860) $(6,499,271)
Denominator:
Weighted average number
of common shares outstanding 42,956,186 20,092,222
No options or warrants outstanding were included in the calculation of
diluted loss per share because their impact would have been anti-dilutive.
The calculation also excludes 111,851 contingently returnable shares in 1999.
5. Income Taxes
Prior to the Company's merger into a C corporation on November 3, 1999,
the federal and state income tax benefits of its losses were recorded by
our stockholders, therefore, no benefit for federal or state income taxes
is reported in these condensed statements of operations. Subsequent to
the merger into a C corporation we will accountshares.
6
4. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes", and expect to beis subject to an effective tax rate of 40%. Had the Company had applied the provisionsNo benefit for
federal or state income taxes has been reported in these condensed
consolidated statements of SFAS 109 since inception,
the deferred tax asset generated, primarily from net operating loss
carryforwards, wouldoperations as they have been offset by a full
valuation allowance.
The
Company believes any tax benefit resulting from expected operating losses
occurring after our conversion to a C corporation will also have a full
valuation allowance.
6. Related Party Transactions
Capital Call:5. GASTEC TRANSACTION
In January 1999, the Company entered into an agreement with MTIFebruary 2000, Plug Power acquired all of Gastec's intellectual property,
and EDC pursuant to which, the Company had the right to require MTI and
EDC to contribute $7.5 million each in 1999 and $15.0 million each in
2000 in exchange for which each would receive common stock valued
at $7.50 per share. The agreement also permitted MTI and EDC to
contribute any funds not previously called by the Company on the
termination date of the agreement (the earlier of December 31, 2000 or
upon an initial public offering of our shares at a price greater than
$7.50 per share) in exchange for shares at a price of $7.50 per share.
In September 1999, the Company made a capital call of $4.0 million,
and MTI and EDC each contributed $2.0 million in cash in exchange for
266,667 shares of common stock. MTI and EDC have subsequently
contributed the remaining $41.0 million in exchange for an aggregate
of 5,466,666 shares of common stock.
Other financing transactions:
On June 23, 1999, EDC purchased 704,315 shares of the Company's common
stock for $4,697,782. Also, the Company entered into a purchase
agreement with MTI to acquire approximately 36 acres of land, two
commercial buildings and a residential building located in Latham, New
York in exchange for 704,315 shares of common stock.
As part of the transaction, which closed on July 7, 1999, the Company
assumed from MTI a $6.2 million direct pay letter of credit to KeyBank
National Association. In connection with the agreement, the Company
was required to escrow $6.2 million. The KeyBank debt was issued for
the express purpose of servicing debtcertain fixed assets, related to $6 millionfuel processor development for fuel cell
systems capable of Industrial Development Revenue (IDR) Bonds issued by an Industrial
Development Agency,producing up to 100 kW of electricity. The total purchase
price was $14,800,000, paid in favor of the acquired property.
Simultaneous with the closing, the Company agreed to lease back to MTI
certain office and manufacturing space on a short-term basis through
November, 1999.cash. In connection with the transaction, with MTI, the
Company has written
off deferred rentrecorded in-process research and development expense in the amount of
$1,850,000 relating$4,984,000, fixed assets in the amount of $191,500 and intangible assets in
the amount of $9,624,500 (including a trained workforce for $357,00).
The in-process research and development was valued using an income approach
which reflects the present value of future avoided costs the Company
estimates it would otherwise have spent if it were to acquire the exclusive
rights to this technology, for its remaining useful life, from another
entity. The Company then discounted the net avoided cost using a 10-year facilities lease associated40%
discount rate which the Company believes to be consistent with the property.
Page 7
7. Investmentrisk
associated this early stage technology. This amount was further adjusted to
reflect the technology's stage of completion, of approximately 30%, in affiliate
In February 1999,order
to reflect the Company entered into an agreement with GE On-Site
Power, Inc. (a wholly owned subsidiaryvalue of General Electric Co.)the in-process research and development attributable
to create
GE Fuel Cell Systems, L.L.C. (GEFCS) a limited liability company createdthe efforts of the seller up to marketthe date of the transaction.
Fixed assets were capitalized at their fair value and distribute fuel cell systems world-wide. GE On-Site Power,
Inc. owns 75% of GEFCS and the Company owns 25% of GEFCS.will be depreciated
over their useful life.
In connection with the formation,transaction, the Company issued 2,250,000 sharesacquired the services of
common stockemployees experienced in the fuel cell industry. Accordingly, the Company
has capitalized the estimated cost savings associated with recruiting,
relocating and training a similar workforce.
The remaining $9,267,500 has been capitalized as an intangible asset. This
amount together with the value attributable to GE On-Site Power, Inc. in exchange for a 25% interest in GEFCS. Of
these share issued, 750,000 vested immediatelythe trained workforce has been
capitalized and will be amortized over 16 months, the remaining
1,500,000 vested in August, 1999. The Company capitalized $11,250,000,period from the fair value of these shares issued under the caption "Investment in
Affiliate" astime of
the date these shares were issued. Theacquisition to our anticipated commercial launch.
6. SUBSEQUENT EVENTS
Development agreements:
In April, 2000, the Company accounts
for its interest in GEFCSfinalized a joint development agreement with
AXIVA GmbH, to develop a high temperature membrane electrode unit (MEU).
Under the agreement, Plug Power and Axiva would exclusively work together on
the equity methoddevelopment of accounting and adjusts
its investment by its proportionate share of income or losses under the
caption "Equity in losses of affiliate". From inception through September
30, 1999, GEFCS had no revenue and an operating and net loss of
approximately $647,000. At September 30, 1999 the difference between the
amount at which the investment is carried and the amount of the
underlying equity in net assets of GEFCS is $10,337,750. Such amount is
being amortized on a straight line basis over a ten year period. For the
period ended September 30, 1999, equity in losses of affiliate were
$912,250 including goodwill amortization of $750,000.
8. Subsequent events
Option Remeasurement:
Subsequent to September 30, 1999, the Company modified the terms of an
employee's option. The impact of this modification will result in a
charge to earnings of approximately $800,000 in the fourth quarter of
1999.
Page 8high temperature MEU for Plug Power stationary fuel cell
system applications.
7
MANAGEMENT'S DISCUSSION AND ANALYSISANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
Condensed Consolidated Financial Statements and Notes thereto included within
this report.report, and our audited financial statements and notes thereto included in
our Annual Report on Form 10-K filed for the fiscal year ended December 31,
1999. In addition to historical information, this Form 10-Q and the following
discussion contain forward-looking statements that reflect our plans, estimates,
intentions, expectations and beliefs. Our actual results could differ materially
from those discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
set forth under the caption "Risk Factors" in our registration statementAnnual Report on Form S-110-K
filed withfor the Securities and Exchange Commission on October 28,fiscal year ended December 31, 1999.
Plug Power was formed in June 1997 as a Delaware limited liability
company. Immediately prior to the closing of our initial public offering, on
November 3, 1999, we merged into a newly-formed Delaware corporation and all of
our outstanding equity interests were converted on a one-for-one basis into
shares of common stock. Unless otherwise indicated, all information that we
present in these financial statements for any date or period gives effect to the
merger as if it had occurred on such date or as of the beginning of such period.
OverviewOVERVIEW
Plug Power is a leading designer and developer of on-site, electricity generation
systems utilizing proton exchange membrane (PEM) fuel cells for residential
applications. GE Fuel Cell Systems, LLC, a joint venture 75% owned by General
Electric's GE Power Systems business and 25% owned by Plug Power, will market,
sell, service, and install our product.
Plug Power was formed in June 1997 as a joint venture to further the
development of fuel cells for electric power generation in residential and other
applications. We are a development stage company and expect to bring our first
commercial product to market in 2001.
Since inception, we have devoted substantially all of our resources toward the
development of the PEM fuel cell systems and have derived substantially all of
our revenue from government research and development contracts. Through September 30, 1999,March
31, 2000, our stockholders in the aggregate hadhave contributed $45.9$224.4 million in
cash, including $93.0 million in net proceeds from our initial public offering
of common stock, which closed on November 3, 1999 and $25.5 million in other
contributions, consisting of in-process research and development, real estate,
other in-kind contributions and a 25% interest in GE Fuel Cell Systems. Five of our eight
stockholders have subsequently invested an additional $84.9 million in cash in
conjunction with our initial public offering of common stock, which closed on
November 3, 1999 (the "Initial Public Offering"). Since inception, we have
devoted substantially all of our resources toward the development of the PEM
fuel cell systems.
We are a development stage company and expect to bring our first
commercial product to market in 2001. Since inception we have derived all of our
revenue from government research and development contracts.
Since our inception in June 1997, we have formed strategic alliances with
suppliers of key components, developed distributor and customer relationships,
and entered into development and demonstration programs with electric utilities,
government agencies and other energy providers.
In 1999,During the first quarter of 2000 we expectcompleted the acquisition of intellectual
property related to fuel processing from Gastec, signed an agreement with
Vaillant to develop next generation heating appliances and acquired a 28 percent
interest in Advanced Energy Systems to enhance our power electronics technology.
We are continuing to ramp up our production activities in order to produce approximately 50 test500
pre-commercial fuel cell systems by the end of 2000. During the first quarter
we produced 22 fuel cell systems for both onsite and evaluationoffsite testing.
Additionally, we currently have 17 systems which will be installed in laboratorythe field running on
natural gas and field locations for fieldproviding power to homes and market testing. Basedbusinesses. These units are
located on Long Island, in Michigan and in the system performance and marketgreater Albany, New York area.
While these units are not our final commercial design they will enable us to
gather meaningful data provided by these laboratory and field
trials, we will determinethat is critical to the final design of our first pre-commercial product.
During 2000 we expect to manufacture approximately 500 pre-commercial
residential fuel cell systems to further our field testing activities and
prepare forinitial commercial
production,product which is plannedcurrently expected to beginbe available in the second half of 2001.
We do not expect significant product sales until after we begin commercial
production.
8
From inception through September 30, 1999March 31, 2000, we have incurred losses of $40.4
million. We$66.2
million and expect to continue to incur losses as we expand our product
development and commercialization program and prepare for the commencement of
manufacturing operations. We expect that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial as a result of, among
other factors, the
Page 9
number of systems we produce and install for internal and
external testing, the related service requirements necessary to monitor those
systems and potential design changes required as a result of field testing.
There can be no assurance that we will manufacture or sell residential fuel cell
systems successfully or achieve or sustain product revenues or profitability.
Results of OperationsRESULTS OF OPERATIONS
Comparison of the Three Months Ended September 30, 1999March 31, 2000 and September 30, 1998.March 31, 1999.
Revenues. Our revenues during this period were derived exclusivelyprimarily from cost
reimbursement government contracts relating to the development of PEM fuel cell
technology. Thesetechnology and contract revenue generated from the delivery of PEM fuel cells
and related engineering and testing support services for other customers. Our
government contracts provide for the partial recovery of direct and indirect
costs from the specified government agency, generally requiring us to absorb
from 25% to 50% of contract costs incurred.
ContractTotal revenues increased
to $3.0 million for the three months ended September 30, 1999 from $2.4 million
for the three months ended September 30, 1998. The increase was due to activity
on two government contracts that were not in place in 1998 as activity began on
these contracts during the first quarter of 1999.
Since inception we have been awarded several contracts that will
generate future contract revenue totaling $16.52000 were $2.9 million through 2003. All of
these contracts provideas compared to
$1.7 million for the partial recoveryfirst quarter ended March 31, 1999. The increase is the
result of directgovernment contract activity with the U.S. Department of Energy and
indirect costs
from the specified government agency, generally requiring us to absorb from 25%
to 50%New York State Energy Research Development Authority combined with $0.6 million
of new commercial contract costs incurred.revenue. As a result of our cost sharing
requirements for government contracts, we will report losses on these contracts.contracts
as well as any future government contracts awarded.
We expectbegan to begin manufacturingmanufacture pre-commercial residential fuel cell systems duringin the
quarter ended March 31, 2000. The pre-commercial units which we are now
developing do not conform to the specifications originally agreed upon with GE
Fuel Cell Systems has committedin February 1999. As a result, GE is no longer contractually obligated to
purchase from us, on
athe 485 units under its take or pay basis, 485 ofcommitment and we no longer
anticipate the pre-commercial residential fuel cell systems
prior to December 31,projected $10.3 million in revenue from GE in 2000. The total sales price for these unitsWe do however
expect that GE will be approximately $10.3 million.purchasing a large number of these modified designs
during the remainder of this year and the first half of 2001. We are currently
working out the terms of this arrangement and our relationship with GE remains
intact.
9
Cost of revenues. Cost of contract revenue includes compensation and
benefits for the engineering and related support staff, fees paid to outside
suppliers for subcontracted components and services, fees paid to consultants
for services provided, materials and supplies used and other directly allocable
general overhead costs allocated to specific government contracts. Cost of
contract revenue was $4.7$3.9 million for the three months ended September 30, 1999,March 31, 2000, as
compared to $3.4$2.2 million for the three months September 30, 1998. Thissame period last year. The increase in
contract costs was related to the additional government grant activity, combined
with the additional staff and related support costs necessary to earn the
additional contract revenue. The result was a loss on contracts of $1.7$1.0 million
for the three months ended September 30, 1999March 31, 2000 compared to a loss on contracts of
$0.9$0.4 million for the three months ended September 30, 1998.last year.
We expect the cost to produce our initial systems to be higher than their
sales price under the terms of our arrangements with our two distributors, GE
Fuel Cell Systems and Edison Development. WeDevelopment and expect to continue to experience
costs in excess of product salesrevenues until we achieve higher production levels,
which we do not expect to occuranticipate until after 2002.
Research and Development. Research and development expense includes
compensation and benefits for the engineering and related staff, expenses for
contract engineers, materials to build prototype units, fees paid to outside
suppliers for subcontracted components and services, supplies used, facility
related costs, such as computer and network services and other general overhead
costs. Research and development expenses increased to $6.1$16.4 million for the
three months ended September 30, 1999March 31, 2000 from $1.4$3.0 million for the three months ended
September 30, 1998.March 31, 1999. The increase was a result of a one-time charge of $5.0 million
related to the write off of in-process research and development related to our
acquisition of intellectual property acquired from Gastec and amortization of
$0.6 million related to the portion of the Gastec purchase price which has been
capitalized and recorded on our balance sheet under the caption "Intangible
assets." The remaining increase, $7.8 million, is attributable to the growth of
Plug Power'sour research and development activities, including the production of 22 test and
evaluation fuel cell systems, focused on residential PEM fuel cell systems.
Page 10
We expect to significantly increase our spending on research and development
in order to bring our residential PEM fuel cell systems to the marketplace by
2001.
General and Administrative. General and administrative expense includes
compensation, benefits and related costs in support of our general corporate
functions, including general management, finance and accounting, human
resources, business development, information and legal services. General and
administrative expenses increaseddecreased to $1.7$1.6 million for the three months ended
September 30, 1999March 31, 2000 from $0.5$2.9 million for the three months ended September 30,March 31, 1999. The
increase was primarilydecrease is due to higher occupancy expensesa one-time charge, in 1999, in the three
months ended September 30, 1999, as a resultamount of $2.3 million for
non-cash stock-based compensation representing the June 1999 real estate
transaction,aggregate fair value of stock
granted to Mechanical Technology, as further describedexplained below, combined withoffset by an
increase of $1.0 million for increased personnel cost and general expenses
associated with expanding operations. We expect general and
administrative expenses to increase as we prepare for sales of our residential
fuel cell systems.
Other Income. Other income consists principally of interest income
earned on our cash and cash equivalents. Other income was $149,550 for the three
months ended September 30, 1999 and $73,929 for the three months ended September
31, 1998.
Equity in losses of affiliate. Equity in losses of affiliate of
$411,802 is our proportionate share of the losses of GE Fuel Cell Systems
($130,552) and goodwill amortization ($281,250) for the three months ended
September 30, 1999, which we account for under the equity method of accounting.
See "Liquidity and Capital Resources - GE Fuel Cell Systems".
Income Taxes. No benefit for federal and state income taxes has been
reported in the financial statements because we were taxed as a partnership for
all periods. Therefore, for the periods presented, the federal and state income
tax benefits of our losses were recorded by our stockholders. Immediately before
the Initial Public Offering on November 3, 1999, we merged into a C corporation
and began accounting for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes", and are
subject to an effective tax rate of approximately 40%. Had we applied the
provisions of SFAS 109 since inception, the deferred tax asset generated,
primarily from net operating loss carryforwards, would have been offset by a
full valuation allowance. We believe any tax benefit resulting from expected
operating losses occurring after our conversion to a C corporation will also
have a full valuation allowance.
Comparison of the Nine Months Ended September 30, 1999 and
September 30, 1998
Revenues. For the nine months ended September 30, 1999, our revenues
where derived exclusively from cost reimbursement government contracts relating
to the research and development of PEM fuel cell technology. These contracts
provide for the partial recovery of direct and indirect costs from the specified
government agency, generally requiring us to absorb from 25% to 50% of contract
costs incurred. Contract revenues increased to $6.7 million for the nine months
ended September 30, 1999 from $5.0 million for the nine months ended September
30, 1998. The increase was due to activity on two government contracts that were
not in place in 1998 as activity began on these contracts during the first
quarter of 1999.
Cost of revenues. Cost of contract revenues includes compensation and
benefits for the engineering and related support staff, fees paid to outside
suppliers for subcontracted components and services, fees paid to consultants
for services provided, material and supplies used and other general overhead
costs directly allocable to specific government contracts. Cost of contract
revenue was $9.8 million for the nine months ended September 30, 1999 as
compared to $6.8 million for the nine months ended September 30, 1999. This
increase relates to the additional staff and related support costs necessary to
earn the additional contract revenue. The result was a loss on contracts of $3.1
million, for
Page 11
the nine months ended September 30, 1999 compared to a loss on contracts of $1.8
million for the nine months ended September 30, 1999.
Research and Development. Research and development expense includes
compensation and benefits for the engineering and related staff, expenses for
contract engineers, material to build prototype units, fees paid to outside
suppliers for subcontracted components and services, supplies used, facility
related costs, such as computer and network services and other general overhead
costs. Research and development expenses increased to $13.9 million for the nine
months ended September 30, 1999 from $3.5 million for the nine months ended
September 30, 1998. The increase was a result of the growth of Plug Power's
research and development activities focused on residential PEM fuel cell
systems.
General and Administrative. General and administrative expense includes
compensation, benefits and related costs in support of our general corporate
functions, including general management, finance and accounting, human
resources, business development, information and legal services. General
administrative expenses increased to $7.3 million for the nine months ended
September 30, 1999 from $1.9 million for the nine months ended September 30,
1998. The increase was primarily due to a $2.3 million charge for non-cash
stock-based compensation, a $1.9 million charge for the write-off of deferred
rent, both further explained below, and higher occupancy expenses in the quarter
ended September 30, 1999, as a result of the June 1999 real estate transaction
explained below.
The $2.3 million charge for non-cash stock-based compensation
represents the aggregate fair value of stock granted to Mechanical Technology.
Our original formation agreements provided for Mechanical Technology to earn
non-cash credits relating to services it rendered prior to our formation in
connection with securing future government contracts. Upon our formation,
Mechanical Technology contributed its fuel cell operations to us and we received
the right to these government contracts if ever awarded in the future. When
these contracts were awarded to us, Mechanical Technology earned the non-cash
10
credits, entitling it to receive 2,250,000 shares of common stock with a fair
value at the time of grant of $2.3 million. Accordingly, we recognized
$2.3 million in non-cash stock-based compensation expense during the first sixthree
months ended March 31, 1999.
Interest Expense. Interest expense of 1999.
In June 1999, we entered into$95,000 for the three months ended
March 31, 2000 consists of interest on a long-term obligation related to a real
estate purchase agreement with Mechanical Technology to acquire our current facility, a portion of which we
previously leased from them. As a result, we wrote off deferred rent expense in the amount of $1.9 million. We originally recorded $2.0 million for deferred
rent in October 1998, representing the value of a ten-yearJuly, 1999, and interest
paid on capital lease agreement with
Mechanical Technology at favorable lease rates. See "Liquidity and Capital
Resources - Capital Contributors by Initial Investors".obligations.
Other Income. Other income consists principally of interest income earned on our cash
and cash equivalents. Other income increased to $367,583$2.3 million for the ninethree
months ended September 30, 1999March 31, 2000 from $115,401$44,000 for the nine months ended
September 30, 1998.same period last year. The
increase was due to interest earned on higher balances of cash and cash
equivalents available duringthroughout the nine months ended September
30, 1999.first quarter of 2000, which is result of
our initial public offering of common stock and the exercise of warrants and
stock purchase commitments by our existing stockholders.
Equity in losses of affiliate. Equity in losses of affiliate increased to
$508,000 for the three months ended March 31, 2000 from $187,500 last year.
Equity in losses of $912,250affiliate of $508,000 for the period ended March 31, 2000 is
our proportionate share of the losses of GE Fuel Cell Systems ($162,250)$226,750 and
goodwill amortization ($750,000) for the nine months ended
September 30, 1999,$281,250, which we account for under the equity method of
accounting.
See "Liquidity and Capital Resources - GE Fuel Cell Systems".
Income Taxes. No benefit for federal and state income taxes has been
reported in the financial statements because wethe deferred tax asset generated
from our net operating loss for the three month period ended March 31, 2000 has
been offset by a full valuation allowance.
We were taxed as a partnership for
all periods. Therefore, forprior to November 3, 1999, the periods presented,effective date
of our merger into a C corporation, and the federal and state income tax
benefits of our losses were recorded by our stockholders. Immediately before
the Initial Public OfferingEffective on
November 3, 1999, we merged into a C corporation and began accounting for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes", and are
subject to an effective tax rate of approximately
Page 12
40%. Had we applied the provisions of SFAS 109 since inception, the deferred tax
asset generated, primarily from net operating loss carryforwards, would have
been offset by a full valuation allowance. We believe any tax benefit resulting
from expected operating losses occurring after our conversion to a C corporation
will also have a full valuation allowance.
Liquidity and Capital Resources
We have financed our operations through September 30, 1999 primarily
from the sale of equity which provided us cash of $45.9 million.Taxes."
LIQUIDITY AND CAPITAL RESOURCES
Summary
Our cash requirements depend on numerous factors, including completion of our
product development activities, ability to commercialize our residential fuel
cell systems, market acceptance of our systems and other factors. We expect to
devote substantial capital resources to continue our development programs
directed at commercializing our fuel cell systems for worldwide residential use,
to hire and train our production staff, develop and expand our manufacturing
capacity, begin production activities and expand our research and development
activities. We will pursue the expansion of our operations through internal
growth and strategic acquisitions and expect such activities will be funded from
existing cash and cash equivalents, issuance of additional equity or debt
securities or additional borrowings subject to market and other conditions.
There can be no assurance that such additional financing will be available on
terms acceptable to the Company or at all. The failure to raise the funds
necessary to finance its future cash requirements or consummate future
acquisitions could adversely affect the
11
Company's ability to pursue its strategy and could negatively affect its
operations in future periods. We anticipate incurring substantial additional
losses over at least the next several years and believe that our current cash
balances the net proceeds we received in connection
with the closing of our Initial Public Offering ($93.4 million) in the fourth
quarter of 1999 and the exercise of warrants and other purchase rights,
immediately before the closing of the offering ($84.9 million), will provide us with sufficient capital to fund operations for at least
the next 12 months.
We have financed our operations through 2001.March 31, 2000, primarily from the
sale of equity, which has provided cash in the amount of $224.4 million. As of
September 30, 1999,March 31, 2000, we had total unrestricted and restricted cash and cash equivalents totaling $9.3$140.9 million and
working capital was approximately $140.0 million. As a result of our purchase
of real estate from Mechanical Technology, we were required to escrow $6.2 million of
the $9.3have escrowed $5.8 million in cash
to securecollateralize the debt assumed on the purchase. Since inception, net cash
used in operating activities has been $25.3$49.0 million and cash used in investing
activities has been $11.3$28.3 million.
For the reasons stated
above, we expect that our cash requirements will increase in future periods.IMPACT OF YEAR 2000
In Junelate 1999, we entered into a real estate purchase agreement with
Mechanical Technology to acquire approximately 36 acres of land, two commercial
buildings, and a residential building located in Latham, New York. This property
is the location of our current facilities and we are presently constructing our
new production facility at this site.
As part of the real estate transaction with Mechanical Technology, we
assumed a $6.2 million letter of credit issued by KeyBank National Association
for the express purpose of servicing $6.2 million of debt related to Industrial
Development Revenue Boards issued by the Town of Colonie Industrial Development
Agency. As consideration for the purchase, we issued 704,315 shares of common
stock to Mechanical Technology, valued at $6.67 per share. The transaction
closed in July 1999 and a receivable for membership interests of $4.7 million
was recorded as shares subscribed as of June 30, 1999. In connection with this
transaction, we wrote off deferred rent expense in the amount of $1.9 million
during the first six months of 1999. This deferred rent expense related to a
10-year facilities lease, at a favorable lease rate, on one of the purchased
buildings. In connection with the July 1999 closing, we agreed to lease some of
the office and manufacturing space back to Mechanical Technology on a short-term
basis, through November 1999.
In June 1999, Edison Development purchased 704,315 shares of common
stock for $4.7 million in cash under provisions of our original formation
documents that allowed Edison Development and Mechanical Technology to maintain
equal ownership percentage in Plug Power. This equity contribution was recorded
as of June 30, 1999.
As of September 30, 1999, Mechanical Technology had made aggregate cash
contributions of $6.5 million plus non-cash contributions of $14.2 million,
while Edison Development had made aggregate cash contributions of $20.7 million.
Page 13
In January 1999, we entered into an agreement with Mechanical
Technology and Edison Development. Pursuant to this agreement, we had the right
to require Edison Development and Mechanical Technology to contribute $7.5
million each in 1999 and $15.0 million each in 2000 in exchange for which each
will receive common stock valued at $7.50 per share. In September 1999, we made
a capital call of $4.0 million, and Mechanical Technology and Edison Development
each contributed $2.0 million in cash in exchange for 266,667 shares of common
stock. Mechanical Technology and Edison Development contributed the remaining
$41.0 million immediately before the closing of the Initial Public Offering, in
exchange for an aggregate of 5,466,666 shares of common stock.
In February 1999, we entered into an agreement with GE On-Site Power to
create GE Fuel Cell Systems, a joint venture owned 75% by GE On-Site Power and
25% by Plug Power, which is dedicated to marketing, selling, installing, and
servicing Plug Power residential fuel cell systems on a worldwide basis (other
than in the states of Illinois, Indiana, Michigan and Ohio).
In connection with the formation of GE Fuel Cell Systems, we issued
2,250,000 shares of our common stock to GE On-Site Power in exchange for a 25%
interest in GE Fuel Cell Systems. Of these, 750,000 shares vested immediately
and the remaining 1,500,000 shares vested in August 1999. As of the date of
issuance of such shares, we capitalized $11.3 million, the fair value of the
shares issued, under the caption, "Investment in affiliate" in our financial
statements.
We also issued a warrant to GE On-Site Power to purchase 3,000,000
additional shares of common stock at a price of $12.50 per share. GE On-Site
Power exercised this warrant immediately before the closing of the Initial
Public Offering, for a total exercise price of $37.5 million in cash.
General Electric has agreed to provide capital to GE Fuel Cell Systems,
in the form of loans, to fund GE Fuel Cell Systems' commitment to purchase 485
pre-commercial systems during the period ending December 31, 2000. General
Electric has also agreed to provide additional capital, in the form of a loan
not to exceed $8.0 million, to fund GE Fuel Cell Systems' ongoing operations.
In April 1999, Southern California Gas Company purchased 1,000,000
shares of common stock for $6.7 million and agreed to spend $840,000 for market
research and services related to distributed power generation technologies,
including PEM fuel cell systems. In the event Southern California Gas does not
expend these amounts by April 2002, up to 111,851 previously issued shares may
be returned. Additionally, Southern California Gas received a warrant to
purchase an additional 350,000 shares of common stock at an exercise price of
$8.50 per share. Southern California Gas exercised this warrant immediately
before the closing of the Initial Public Offering, for a total exercise price of
$3.0 million in cash.
In February 1999, Michael J. Cudahy, a director of Plug Power,
purchased 1,500,000 shares of common stock for a total of $10.0 million. In
addition, Mr. Cudahy received a warrant to purchase 400,000 shares of common
stock at a price of $8.50 per share. Mr. Cudahy exercised this warrant
immediately before the Initial Public Offering for a total exercise price of
$3.4 million in cash. In April 1999 an unrelated investor purchased 299,850
common shares for $2.0 million.
Year 2000 Readiness Disclosure
The statements in the following section include "Year 2000 readiness
disclosure" within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998. The protections of this Act do not apply to claims under
the anti-fraud provisions of the federal securities laws.
Page 14
Introduction
The Year 2000 issue relates to the various problems that may result
from the improper processing of dates and date-sensitive calculations by
computers and other machinery as the year 2000 is approached and reached. These
problems arise from hardware and software unable to distinguish dates in the
"2000s" from dates in the "'1900s" and from other sources such as the use of
special codes and conventions in software that make use of date fields. These
problems could result in a system failure or miscalculations causing disruptions
of operations, including a temporary inability to process transactions, send
invoices or engage in other normal business activities. The Year 2000 issue may
pose additional problems due to the fact the Year 2000 issue may pose additional
problems due to the fact that Year 2000 is a leap year and some computers and
programs may fail to recognize the extra day.
Our State of Readiness
We have completed a review and evaluation of the potential impact
that the change in the date to the Year 2000 will have on our computer systems. As a
result of this review, we have determinedsystems
and concluded that all of our major computer systems arewere able to recognize and
appropriately process dates commencing in the Year 2000. Our computerAs a result of those
planning and implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and non-information
technology systems are based upon commercial personal computer-based
software packages. All such software packages have been examined for their
compliance and appropriate upgrades are being purchased and installed. Existing
personal computerbelieves those systems that are notsuccessfully responded to the Year
2000 compliant are scheduled for
replacement prior to the end of 1999. We have also completed a review and
assessment to identify all other computer-related systems and time dependent
processes and have determined that all of our business critical systems have
been verified to be Year 2000 compliant. New systems acquired during 1999 have
also been reviewed to verify that they are Year 2000 compliant.
Cost to Address Year 2000 Issuesdate change.
Our historical costscost to assess our Year 2000 readiness havehas been negligible. We areThe
Company is not currently able to estimate the final aggregate costaware of addressing theany material problems resulting from Year 2000 issue because funds may be required as a resultissues,
either with its internal systems, or the products and services of future findings. The majority of the costs requiredthird parties.
We will continue to complete our Year 2000
compliance process will be incurred as part of our normal capital asset
acquisition program and would have been incurred without consideration of Year
2000 issues. We do not expect these costs to have a material adverse effect on
our business financial results.
Risks Presented by Year 2000 Issues
Computer systems are also used to operate and monitor our fuel cell
systems. However, due to the early stage of commercialization of our fuel cell
systems, any potential failures of our testmission critical computer applications and evaluation systems related to
the Year 2000 are not expected to have a material impact on our product
development or commercialization schedule. During mid-1999, all key suppliers
received a copy of our Year 2000 compliance questionnaire. To date approximately
75% have replied that they are or will be compliant prior to Year 2000. We are
re-contacting supplies that have not yet responded. We plan to have responses
from all key suppliers by the end of 1999. We ask all new suppliers to confirm
their year 2000 compliance. We are contacting all suppliers of equipment and
services that may be date- and time-sensitive to verify that their products and
equipment will meet with Year 2000 standards. We are unable to fully assess the
state of Year 2000 readinessthose
of our suppliers and customers. Given our current
development state and our pilot scale production volumes, we do not anticipatevendors throughout the year 2000 to ensure that any latent
Year 2000 related difficulties in third parties will have a material impact
on our business activities or prospects.
Page 15
Our Contingency Plan
We do not have, but will continue to evaluate the need for, a
contingency plan for business risks that might result from Year 2000-related
events. As we progress with our Year 2000 readiness plan and identify specific
risk areas, we intend to implement appropriate remedial actions and contingency
plans.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 (SFAS 131), "Disclosure about Segments
of an Enterprise and Related Information." SFAS 131 establishes new standards
for the way companies report information about operating segments in annual
financial statements. The disclosures prescribed by SFAS 131 are effective for
the year ended December 31, 1998. We do not believe we operate in more than one
segment.
Quantitative and Qualitative Disclosures About Market Risk
We invest our excess cash in interest-bearing, investment-grade
securities that we hold for the duration of the term of the respective
instrument. We do not utilize derivative financial instruments, derivative
commodity instruments or other market risk sensitive instruments, positions or
transactions in any material fashion. Accordingly, we believe that, while the
investment-grade securities we hold are subject to changes in the financial
standing of the issuer of such securities, we are not subject to any material
risks arising from changes in interest rates, foreign currency exchange rates,
commodity prices, equity prices or other market changes that affect market risk
sensitive instruments.
Forward-looking Statements
This Form 10-Q contains forward-looking statements. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial condition or state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control andmatters that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Investorsarise are cautioned that all forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those discussed as
a result of various factors, including product development delays, changing
governmental regulations, the ability to attract and retain employees and
business partners, future levels of government funding, competition from other
manufacturers of fuel cell systems and from other existing and advanced power
technologies, evolving markets for generating electricity and power, the ability
to provide the capital required for product development, operations and
marketing, and Year 2000 readiness. These factors should be considered carefully
and readers should not place undue reliance on our forward-looking statements.
Page 16addressed promptly.
12
PartPART II - Other InformationOTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
On November 8, 1999, we received correspondence from counsel toJanuary 25, 2000, DCT, Inc. filed a complaint against Plug Power, The Detroit
Edison Company and Edison Development Corporation, alleging among other things, that wethese entities
misappropriated from DCT business and technical trade secrets, ideas, know-how
and strategies relating to fuel cell systems and that we breached certain contractual
obligations owed to DCT. The
correspondence threatens litigation against us as well as Edison Development
Corporation, DTE Energy Company, The Detroit Edison Company and Mechanical
Technology Incorporated. We believe that the allegations made against us are without
merit and we intend to vigorously defendcontest the litigation. Discovery is currently
underway. Due to the early stage of this litigation, we cannot determine whether
any litigation which may be
filed against us with regard to this matter, butloss will result from the ultimate outcome of any
litigation is of course uncertain. As a result of the allegation we filed a Form
8-K with the Securities and Exchange Commission on November 16, 1999.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------
(1) The effective date of the Securities Act registration statement for which
the use of proceeds information is being disclosed was October 28, 1999,
and the Commission file number assigned to the registration statement is
333-86089.
(2) The offering commenced as of October 29, 1999.
(3) The offering did not terminate before any securities were sold.
(4) (i) As of the date of the filing of this report, the offering has
terminated and approximately 6,782,900 of the securities registered
were sold.
(ii) The names of the managing underwriters are Goldman, Sachs & Co.,
Hambrecht & Quist, Merrill Lynch & Co. and FAC/Equities.
(iii) The Company's Common Stock, par value $0.01 per share, was the class
of securities registered.
(iv) The Company registered up to a maximum aggregate offering price of
$117,300,000 pursuant to Rule 457(o) of the Securities Act
6,782,900 shares were sold, including 782,900 pursuant to the
underwriters' exercise of their overallotment option, for an
aggregate offering price of $101,743,500.
(v) From October 29, 1999 to the date hereof, the amount of expenses
incurred by the Company in connection with the issuance and
distribution of the securities is approximately $8.1 million, which
consisted of direct payments of: (i) $0.8 million in legal,
accounting and printing fees; (ii) $7.1 million in underwriters
discount, fees and commissions; and (iii) $0.2 million in
miscellaneous expenses. No payments for such expenses were made to
(i) any of the Company's directors, officers, general partners or
their associates, (ii) any person(s) owning 10% or more of any class
of equity securities of the Company or (iii) the Company's
affiliates, except as noted below.
Page 17
FAC/Equities, a co-manager of the offering, is a division of First
Albany Corporation, whose parent is First Albany Companies, Inc.
First Albany owns approximately 34.0% of the outstanding common
stock of Mechanical Technology Incorporated which in turn
beneficially owns approximately 32.5% of Plug Power Inc.
(vi) The net offering proceeds to the Company after deducting its total
expenses is expected to be $93.4 million. We also received $84.9
million from the issuance of 9,216,666 share of common stock upon
the exercise of outstanding warrants and other purchase rights
immediately before the offering.
(vii) The uses of proceeds are not expected to be materially different
from the use of proceeds described in the Company's prospectus. (i)
approximately $20.0 million will be used for capital equipment,
facilities and other capital expenditures and (ii) approximately
$158.3 million will be used for general corporate purposes,
including working capital, funds for operations, research and
development, market development and capital expenditures after the
year 2000 and potential acquisitions.
C) Sales of Unregistered Securities
In September 1999, the Company sold to each of Mechanical Technology
Incorporated and Edison Development Corporation 266,667 shares of
common stock for $2.0 million in cash. The transaction was exempt
from registration pursuant to Section 4(2) under the Securities Act
of 1933.outcome.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
A) On August 16, 1999, Plug Power, LLC, as the sole shareholder of Plug Power
Inc., by unanimous written consent, elected as directors of Plug Power
Inc. the following people: Anthony Earley, Michael Cudahy, George McNamee,
Walter Robb, and Larry Garberding. Gary Mittleman, previously the sole
director of Plug Power Inc. continued as director.None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
A) Exhibits.
1.1 Underwriting Agreement.*
2.1 Agreement and Plan of Merger by and between Plug Power and Plug Power,
LLC, a Delaware limited liability company, dated as of October 7, 1999.*
3.1 Amended and Restated Certificate of Incorporation of Plug Power.*
3.2 Amended and Restated By-laws of Plug Power.*
Page 18
4.1 Specimen certificate for shares of common stock, $.01 par value, of Plug
Power.*
10.1 Amended and Restated Limited Liability Company Agreement of GE Fuel Cell
Systems, LLC, dated February 3, 1999, between GE On-Site Power, Inc. and Plug
Power, LLC LLC.*
10.2 Contribution Agreement, dated as of February 3, 1999, by and between GE
On-Site Power, Inc. and Plug Power, LLC.*
10.3 Trademark and Trade Name Agreement, dated as of February 2, 1999, between
General Electric Company and GE Fuel Cell Systems, LLC.*
10.4 Trademark Agreement, dated as of February 2, 1999, between Plug Power LLC
and GE Fuel Cell Systems, LLC.*
10.5 Distributor Agreement, dated as of February 2, 1999, between GE Fuel Cell
Systems, LLC and Plug Power, LLC.*
10.6 Side letter agreement, dated February 3, 1999, between General Electric
Company and Plug Power LLC.*
10.7 Mandatory Capital Contribution Agreement, dated as of January 26, 1999,
between Edison Development Corporation, Mechanical Technology Incorporated and
Plug Power, LLC and amendments thereto, dated August 25, 1999 and August 26,
1999.*
13
10.8 LLC Interest Purchase Agreement, dated as of February 16, 1999, between
Plug Power, LLC and Michael J. Cudahy.*
10.9 Warrant Agreement, dated as of February 16, 1999, between Plug Power, LLC
and Michael J. Cudahy and amendment thereto, dated July 26, 1999.*
10.10 LLC Interest Purchase Agreement, dated as of February 16, 1999, between
Plug Power, LLC and Kevin Lindsey.*
10.11 LLC Interest Purchase Agreement, dated as of April 1, 1999, between Plug
Power, LLC and Antaeus Enterprises, Inc.*
10.12 LLC Interest Purchase Agreement, dated as of April 9, 1999, between Plug
Power, LLC and Southern California Gas Company.*
10.13 Warrant Agreement, dated as of April 9, 1999, between Plug Power, LLC
and Southern California Gas Company and amendment thereto, dated August 26,
1999.*
10.14 Agreement, dated as of June 26, 1997, between the New York State Energy
Research and Development Authority and Plug Power LLC, and amendments thereto
dated as of December 17, 1997 and March 30, 1999.*
10.15 Agreement, dated as of January 25, 1999, between the New York State
Energy Research and Development Authority and Plug Power LLC.*
Page 19
10.16 Agreement, dated as of September 30, 1997, between Plug Power LLC and
the U.S. Department of Energy.*
10.17 Cooperative Agreement, dated as of September 30, 1998, between the
National Institute of Standards and Technology and Plug Power, LLC, and
amendment thereto dated May 10, 1999.*
10.18 Joint venture agreement, dated as of June 14, 1999 between Plug Power,
LLC, Polyfuel, Inc., and SRI International.*
10.19 Cooperative Research and Development Agreement, dated as of February 12,
1999, between Plug Power, LLC and U.S. Army Benet Laboratories.*
10.20 Nonexclusive License Agreement, dated as of April 30, 1993, between
Mechanical Technology Incorporated and the Regents of the University of
California.*
10.21 Development Collaboration Agreement, dated as of July 30, 1999, by and
between Joh. Vaillant GMBH. U. CO. and Plug Power, LLC.*
10.22 Agreement of Sale, dated as of June 23, 1999, between Mechanical
Technology, Incorporated and Plug Power LLC.*
10.23 Assignment and Assumption Agreement, dated as of July 1, 1999, between
the Town of Colonie Industrial Development Agency, Mechanical Technology,
Incorporated, Plug Power, LLC, KeyBank, N.A., and First Albany Corporation.*
14
10.24 Replacement Reimbursement Agreement, dated as of July 1, 1999, between
Plug Power, LLC and KeyBank, N.A.*
10.25 1997 Membership Option Plan and amendment thereto dated September 27,
1999.*
10.26 Trust Indenture, dated as of December 1, 1998, between the Town of
Colonie Industrial Development Agency and Manufacturers and Traders Trust
Company, as trustee.*
10.27 Distribution Agreement, dated as of June 27, 1997, between Plug Power,
LLC and Edison Development Corporation and amendment thereto dated September
27, 1999.*
10.28 Agreement, dated as of June 27, 1999, between Plug Power, LLC and Gary
Mittleman.*
10.29 Agreement, dated as of June 8, 1999, between Plug Power, LLC and Louis
R. Tomson.*
10.30 Agreement, dated as of August 6, 1999, between Plug Power, LLC and
Gregory A. Silvestri.*
10.31 Agreement, dated as of August 12, 1999, between Plug Power, LLC and
William H. Largent.*
10.32 Agreement, dated as of August 20, 1999, between Plug Power, LLC and Dr.
Manmohan Dhar.*
10.33 1999 Stock Option and Incentive Plan.*
10.34 Employee Stock Purchase Plan.*
Page 20
10.35 Agreement, dated as of August 27, 1999, by Plug Power, LLC, Plug Power
Inc., GE On-Site Power, Inc., GE Power Systems Business of General Electric
Company, and GE Fuel Cell Systems, L.L.C.*
10.36 Registration Rights Agreement to be entered into by the Registrant and
the stockholders of the Registrant.*
10.37 Registration Rights Agreement to be entered into by Plug Power, L.L.C.
and GE On-Site Power, Inc.*
23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1 hereto).*
23.2 Consent of PricewaterhouseCoopers LLP.*
24.1 Powers of Attorney (included on signature page).*
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File Number 333-86089)
27.1 Financial Data Schedule
B) Reports on Form 8-K.
None.
SignatureOn January 28, 2000, we filed a Form 8-K with the Securities and Exchange
Commission to report a complaint was filed by DCT, Inc. on January 25,
2000.
15
On February 9, 2000, we filed a Form 8-K with the Securities and Exchange
Commission announcing the issuance of a press release announcing an
agreement with Gastec, a developer of fuel processor technology.
On March 10, 2000, we filed a Form 8-K with the Securities and Exchange
Commission announcing the issuance of a press release announcing a
development agreement with GE MicroGen and Joh. Vaillant GmbH u. Co., a
leading European heating appliance manufacturer.
SIGNATURE
- -------------------
Pursuant to requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PLUG POWER INC.
Date: December 13, 1999 by: /s/ Gary Mittleman
-------------------------
Gary Mittleman
Chief Executive Officer
by: /s/ WilliamDATE: MAY 4, 2000 BY: /S/ GARY MITTLEMAN
----------------------
GARY MITTLEMAN
CHIEF EXECUTIVE OFFICER
BY: /S/ WILLIAM H. Largent
-------------------------
William Largent
Chief Financial Officer
Page 21LARGENT
--------------------------
WILLIAM LARGENT
CHIEF FINANCIAL OFFICER
16